Aug. 7 (Bloomberg) -- Treasuries dropped, pushing 10-year
yields to the highest level in a month, as the U.S. prepared to
sell $32 billion of three-year debt today, the first of three
note and bond auctions this week totaling $72 billion.

U.S. debt fell for a third day before the U.S. sells $24
billion of 10-year notes tomorrow, and $16 billion of 30-year
bonds on Aug. 9. Federal Reserve Bank of Boston President Eric
Rosengren said the inflationary effects of the central bank’s
securities purchase programs are a real concern, in an interview
with CNBC. The difference between yields on 10-year notes and
similar-maturity Treasury Inflation Protected Securities, rose
to the highest in two months.

“There’s a bit of a risk-on type of tone going on,” said
Sean Murphy, a trader at Societe Generale SA in New York, one of
the 21 primary dealers that trade with the Fed. “It’s weighing
on prices. As long as the market continues to back up like this,
that would open the doors to more interest. They will look at
supply as a buying opportunity.”

The 10-year yield rose six basis points, or 0.06 percentage
point, to 1.63 percent at 11:11 a.m. in New York, according to
Bloomberg Bond Trader prices, reaching the highest level since
July 2. The 1.75 percent note maturing in May 2022 fell 17/32 or
$5.31 per $1,000 dollar face amount, to 101 3/32.

The yield on the 30-year bond rose to 2.73 percent, the
highest since July 5.

Debt Sale

“A lot of people are sorting through if it’s supply or a
re-pricing in general,” said Tom Tucci, managing director and
head of Treasury trading in New York at CIBC World Markets Corp.
“You are moving into a more neutral zone as far as rates are
concerned.”

The notes to be sold today yielded 0.36 percent in pre-auction trading, compared with 0.366 percent the previous time
they were sold on July 10. Investors submitted orders to buy
3.52 times the amount of available debt last month. The average
over for the past 10 sales is 3.49 times.

The difference between yields on 10-year notes and similar-maturity TIPS, a gauge of expectations for consumer prices
during the life of the debt, was 2.21 percentage points,
touching the highest since May. The average during the past
decade is 2.15 percentage points.

Investor appetite for the safety of Treasuries ebbed this
month when a U.S. employment report showed the nation added
163,000 jobs, more than the 100,000 projected by economists
surveyed by Bloomberg News.

Fed Buys

The U.S. central bank bought $2.3 trillion of mortgage and
Treasury debt from 2008 to 2011 in two rounds of so-called
quantitative easing to cap borrowing costs. It’s now in the
process of swapping shorter-term Treasuries in its holdings with
those due in six to 30 years to put downward pressure on long-term borrowing costs.

The Fed purchased $4.5 billion of Treasuries due from
August 2018 to May 2020 today as part of the program, according
to the Fed Bank of New York website.

Treasuries investors cut bets the securities will drop in
price, resulting in the lowest level of outright shorts in
almost six months, according to a survey by JPMorgan Chase & Co.

The percentage of outright shorts dropped to 11 percent
from 15 percent in the week ending yesterday, according to the
survey, the least since Feb. 13. Neutral bets rose to 72 percent
from 68 percent.

The proportion of net longs, or bets the securities will
rise versus those that will fall, increased to 6 percentage
points from 2 percentage points, as the number of outright longs
was unchanged at 17 percent.